Triage when you’re laid off

Posted on February 25, 2015February 25, 2015 by Danielle

When companies need to merge or downsize, you can hear the insect buzz of layoffs in the wind. It used to be that the first hired would be the first fired, but the trend I’m seeing now is to lay off the employee over 50 years old, as the most expensive and shortest “useful life” to the company. Makes you kinda long for the days of seniority and unions. If that’s you, well, you can just retire early, no? These guys have hearts of gold.

I offer a dozen ideas, below. It’s a tough time for you, no doubt, but realize it was a business decision, not really having much to do with you. How do I know? Because I’m seeing it over and over, company after company.

Negotiate hard for outplacement counseling. You want professional advice on shaping up your resume, looking your best, and planning out a battle strategy. If your company doesn’t offer it, or you can’t guilt them into it, invest the money in a career counselor for yourself. It’ll be one of the best $2,000 you ever spent on your career.
Seek out every professional organization in your field, join them if possible, and attend meetings (and conferences if possible). You need to expand your network.
Learn how to do a decent job on your LinkedIn Profile. Most people just park a profile, but you are going to need to work it. Look at all your connections’ connections and seek introductions.
A lot of people keep Facebook for personal friends. You should still contact them to let them know you’re in the job market. Most people would love to help, but they have to KNOW.
While I usually advocate paying off credit cards monthly, this may be the time to make minimum payments. You need to marshal your cash.
Make every effort to live on severance and unemployment, and plan for one year. This may mean cutting expenses to the bone. It’s not forever.
If you can’t cut, downsize—instead of eating out, downsize to coffee. Netflix instead of movies out. Vegetarian one night. You get the idea. The mantra is prudent and frugal (not cheap and desperate).
Absolutely don’t beat yourself. I’ve seen plenty of clients in your position. This is just a corporate juggernaut, not your individual fault. Now, you make good business decisions to manage your career.
Don’t cash out your IRA. However, if it looks like your income will be very low (evaluate towards the end of the year), this might be a great opportunity to convert a traditional IRA to a Roth.
Find a part-time gig, teach a class, freelance, whatever you can think of to get a little money coming in. Don’t, however, decide to start a business which requires materials or equipment or anything that needs funding.
Don’t do anything rash. Even if you have to sell your house, try to make the decisions when you’re calm—maybe you can rent the house temporarily.
If you have children in college, notify the school immediately. They may be able to re-evaluate financial aid.

People over fifty do find jobs. It can take longer, and it may not be at as high a salary as your former position. You may need to revise your retirement plans. It may not be quite the same future as you thought, but what ever is? You do have a future, and you can make revised plans for it.

Should you stay home with the kids?

Posted on January 26, 2015January 26, 2015 by Danielle

I did, and don’t regret it for a minute. It was tons of fun and a chance to do all the things I hadn’t done in my own childhood. Staying home with your children is not primarily a financial decision, but it does have some profound financial consequences. So as you are making decisions about whether you will be a stay-at-home parent for some portion of your child-rearing years, here are some financial points to consider.

Consider your Social Security benefits. Sure, collecting Social Security seems like a million years away. But since benefits are based on your entire record, taking into account your 35 highest earning years, taking 20 years, or even 10 years, out of your lifetime earnings record can hit hard on your future benefits. (see more information here). Stay-at-home parents who later get a divorce can have a much bleaker retirement picture than someone who has worked consistently. If you have been married at least 10 years, (or stay married), you will be eligible for spousal benefits—generally, ½ your spouse’s primary benefit. However, this may be much less than if you had maintained employment at a relatively high earning job.
Consider disability benefits. If you do not have a recent work history and become disabled, you may not be eligible for Social Security disability payments. If you are not employed, you will probably not be able to get private disability insurance either, since generally this insurance is based on earning. There are some ways to approximate disability insurance and protect you, but it’s complicated—contact me to discuss this if the situation applies to you.
Evaluate your life insurance. Many people have life insurance primarily through their workplace. If you are not employed outside the home, consider what replacing your services would cost your family, and investigate appropriate life insurance.
Be careful about working for your spouse’s business for free. If the spouse owned the business before marriage, you are probably not going to be entitled to any share of the business’s worth in the event of divorce. Also, you are not building up Social Security benefits. Finally, if you are unpaid you will not have an employment record should you need to borrow money, secure credit, or purchase disability protection.
Keep some credit in your own name (not joint). Too many people decide to cancel all those old individual-account credit cards in favor of joint accounts when they marry. Or let those accounts lapse over disuse. In the event of the spouse’s death or disability, or divorce, a stay-at-home parent may not be able to qualify for a credit card. Always keep one major credit card as an individual account, and use it from time to time to keep it active. The easiest cards to get are department and discount stores, but one with a significant limit that will allow you to book travel, rent a car, or pay for a hotel or emergency daily expenses is the one to have.
Know how staying home will affect your student loans. If you are on a repayment forgiveness plan because of working for a non-profit, your loans may kick back to full repayment. Be sure you calculate what this might cost you. I have seen cases where leaving non-profit employment would increase loan repayment by the mid-five figures!
Start a small business and run it like a business. It’s much easier to take a part-time business to full-time than it is to start from scratch.
Keep your network and your professional contacts alive. Same reason as #7.
Take every opportunity to upgrade your professional skills. At some point the baby goes to college. You will have the rest of your life. Upgrading skills keeps you current and marketable. Most people will eventually return to work.

Sure, this is disaster planning, and my sincere hope is that you will never have such a disaster. All decisions require weighing the choices and consequences, however, so do some planning and–enjoy your children.

Financial Advice—Whom Should You Trust?

Posted on November 20, 2014November 20, 2014 by Danielle

Embed from Getty Images

Given the stuff I’ve encountered in the past week, you’d think I was living in Scam-a-lot. It’s been a banner week for schemes designed to hoodwink the consumer and get us all to buy questionable stuff at unquestionably high fees. It’s made me think about a few predictable trends to watch out for.

If you’re reading about it on the internet, consider the source.

This morning I had a lovely 20 minute conversation with someone representing himself as a reporter on deadline. Now, this guy sounded pretty good—had a voice better than Ron Burgundy—and told me his research staff had identified me as someone unique in the field. Well, I like compliments as much as the next victim, er, individual, and I figured the guy said he was in radio. He had a pretty good angle—asking me the type of reporter questions I always get for background.

I probably hadn’t had enough coffee yet, so it took a while for my BS detector to go off. First clue was the voice—most reporters I talk to are slurping a cup of coffee or chewing on a paperclip while they talk to me. Second clue—no key clacking in the background. Third, he just had a lot of time and most reporters are trying to get the info and get you off the phone stat. And they don’t like you all that much.

So finally, after blathering on about how great fee-only was and how I got into the business and yadda-yadda, I pulled up short when he started showing me his lovely slick website and how they were going to make two shows featuring me AND HOW I COULD APPROVE AND REVISE ALL CONTENT. Uh-oh—so I asked, “Is there a cost to this?” Guess what.

This is not journalism, where a reporter has at least some credibility and isn’t promoting industry interests. Ethical journalism still keeps a barrier between the news and the advertising. So if you’re reading some kind of advice on a website, click that “About” tab to see who these people are. Check the footnote on the page to see if they mention “securities sold”. If you’re really diligent, check out the little link (if it exists) that says “information for advisors” or “how to be selected”—it will tell you what the “experts” have paid to be included as experts.

And BTW, you won’t be hearing me on Blogtalk Radio any time soon.

If someone is in the public eye, it doesn’t mean you can trust them

I’ve written about Dave Ramsey before, but someone else walked into my office with livin’ breathin’ proof of why you should be skeptical.

I like Ramsey’s advice about getting out of debt, and his principle that you should budget for charitable contributions as well as all the junk you and I waste money on. He’s inspired a lot of people with the confidence that they can turn their lives around, and he focuses on the everyday Joe, not those “high-net-worth individuals” so beloved by the brokerage industry.

And then he turns right around and finds a way to scam those same Joes. When you click on his referrals to financial advisors, as far as I can determine every single one of them is a commissioned broker/salesperson or insurance agent, and the main screening ole Dave has done is whether the hefty check he requires has cleared the bank. So much for Dave’s “trusted providers”.

Now, I’m not totally against commissions, especially when clients can understand the product (for example, real estate purchases) or are made aware of exactly what it will cost them (a few low load type insurance providers). But you ought to know what screening, what “referral fees”, and what membership dues have been paid for your referral.

For example, I belong to the Garrett Planning Network, which has a referral service on their site. To be listed there, I have to be a CFP®, be fee-only, not accept referral fees, and half of my engagements (at least) have to be on an hourly basis (as opposed to AUM). I do pay dues to Garrett, and for that I get continuing education, industry updates, and a community of people to ask questions of.

I also belong to NAPFA, which offers referrals to people that visit their site. Again, I have to be a CFP®, be fee-only, and in NAPFA’s case, had to submit a sample client plan to be reviewed and approved. I get approximately the same benefits from them, although they also charge me for continuing education, and require that I report a minimum number of hours each two years.

My blog is sometimes re-syndicated via Garrett and NAPFA to other organizations that are supposed to promote reliable advice to consumers, such as Fee-Only Network. I do what I can to control where my information appears, but various business services often pick up my information, and I don’t have much control over that—in fact, I often do not know until I get a promo from them trying to convince me of the value of going from their basic service to “premium”. I don’t.

Especially beware of people who scream on TV or give you a limited-time offer. You should never be in a blinding hurry to invest.

If it seems too good to be true, it is

The other big beef I have with Ramsay is that he has repeatedly stated that you should be able to achieve a 12% return on your investments. Rotsaruck. Most of the people he speaks to—trying to get out of debt and accumulate initial savings—should not be investing in anything risky enough to earn that kind of annual return. Even over a very long time, that would be an unusually high return on legitimate investments.

Almost every scam I read or hear about involves someone “guaranteeing” that the investment will pay a higher than market rate. Bernie Madoff sucked people in by offering just 8%. I’d guess close to 100% of investment scams could be avoided by the people they bite if individuals were just a tiny bit more skeptical of oversized promises, and a teensy-weensy bit less greedy.

Don’t buy because someone wraps themselves in religion

See especially Dave Ramsay, above. Or the person who trades on belonging to your church, or religion, or alumni association or is your cousin. Not that you shouldn’t have something in common with your advisor, but you should check to make sure they’re competent, credentialed, and reputable as well. In the case of relatives especially you shouldn’t invest because you feel sorry for them just starting out. Every broker is trained to lean on family and friends first to harvest low hanging fruit. And how bad are you going to feel at family gatherings after your relative has lost all your money? Can you ever fire him? Better just to give him a few hundred bucks–it’ll be cheaper in the long run.

Know what you’re paying

Have I said this enough? Well, if Dave Ramsey sent you to some guy who sold you an annuity where 70% of your quarterly investments were going to pay the quarterly fees, would you be in my office wondering how to get out of this “wealth-building” investment? True story.

Even people who ought to be on your side can give crummy advice

Another true one—client met with a plan advisor from his company’s new retirement plan provider. “Advisor” recommended some excellent, low cost mutual funds—ones I often recommend as part of a portfolio. “Advisor” told client these funds were doing great right now. True. However, client already has plenty of money in these asset classes, and when an asset class is “hot”, you ought to be buying the opposite. Buying the “hot” asset class or fund means it’s already run up in value, and you will be buying at the peak of the market. Buy LOW, SELL high. But most people end up doing the opposite, and with “professional” advice.

So, that’s the blowback for the past week. I await with bated breath what new scams lie ahead. Meanwhile, I’ll continue to recommend boring. And prudent. And understandable. And sleep at night.